How the group became so richly priced is an oft-told and uncomplicated story. “If stock prices are the net present value of their future cash flows, higher rates should penalize growth stocks, which derive most of their profits from distant profits.” “Their collective net income fell to $263 billion in the past four quarters, down 9% from $289 billion the year before,” he said. which have fast evolved into “mature companies” whose massive revenues barely keep up with nominal gross domestic product growth, wrote Vincent Deluard, director of global macro at StoneX Financial. Take a look at the big five platforms - Apple, Inc, Meta Platforms Inc., Alphabet Inc and Microsoft Corp. Numbers like that informed the week’s loudest warning - a study by factor-investing legend Rob Arnott that labeled Nvidia “a great company priced beyond perfection.” The whole market is a potential casualty, said the founder of Research Affiliates LLC, when investors wake up to his view that the AI powerhouse isn’t “too big to fail,” but “too big to succeed.” “Even modest news flow has led to larger moves to the downside in several specific technology stocks suggesting vulnerability may be more than perceived.” “There is a lot of faith that the prospects for AI are real and will not end up the same way that the internet bubble stocks did,” said Peter van Dooijeweert at Man Solutions. Versus sales, the Nasdaq fetches a multiple of nearly five, almost twice as expensive as the broader market. Nasdaq 100 equities trade at 27 times annual earnings, 35% above the S&P 500 - whose own valuation is inflated by the same tech megacaps. The burden faced by investors inclined to take a flyer on software and internet stocks is clear when looking at the headline fundamentals. both notching their second-worst falls of the year. Coming off its best week since June, the Nasdaq slumped, with Apple and rally champion Nvidia Corp. China’s expansion of a ban on Apple Inc.’s iPhone landed just as bond yields nudged higher, underlining a market-valuation picture that some see an outright bubble. But when they start exerting fresh pressure all at once, even the boldest proponents of artificial intelligence can be forgiven for feeling sheepish. Individually, none of these bearish prophecies have slowed a market rally that has added $5 trillion to the Nasdaq 100’s value since December. Regulators are set to break up their sprawling monopolies. Surging valuations and elevated interest rates doom them. (Bloomberg) - People on Wall Street have taken potshots at tech stocks all year.
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